4,000 financial houses in danger: British supervision warns of bank crash

Thursday, January 07, 2021

4000 financial houses in danger
British supervision warns of bank crash

The corona pandemic is eating away at the financial strength of British financial institutions. According to the FCA, the risk of thousands of banks collapsing, especially smaller ones, has increased significantly. The pressure to consolidate – also across national borders – is increasing as a result.

The British financial regulator FCA sees black for thousands of smaller financial institutions in the country hard hit by the Corona crisis. The Financial Conduct Authority (FCA) said that around 4,000 companies in the industry had lost their financial strength as a result of the pandemic and the risk of collapse increased significantly.

The authority involved 23,000 institutes in its investigations. The threatened companies are mainly small and medium-sized financial houses. The 1500 largest banks in Great Britain were not included in the stress test. They are directly supervised by the Bank of England (BoE).

In perspective, the growing pressure on the industry could accelerate bank mergers – even across national borders. The head of the German financial regulator Felix Hufeld is convinced that the corona crisis is increasing the pressure for consolidation. There have already been major national associations in Spain and Italy.

"At some point there will also be cross-border mergers," he recently told the Handelsblatt. "In the short term, however, I do not expect this – unless an emergency arises in which one has to act quickly." Hufeld does not expect that there will be a major emergency in Germany.

Nevertheless, it is clear that the bank balance sheets will be damaged by increased loan defaults in the Corona crisis. It is only unclear when and how much exactly. "Personally, I assume there will be several waves. The first could be in early 2021 when the obligation to file for bankruptcy takes effect again," said Hufeld.